Posts Tagged ‘Gross Domestic Product’

In the wake of the Global Financial Meltdown of 2008-2009, central banks launched monetary stimulus programs aimed at pumping money into the economy. The stated goals of these stimulus programs were 1) boost employment and 2) generate enough inflation to stave off deflation, which is generally viewed as the cause of financial depressions.

The slowdown in China’s economy was set in motion when the yearly rate of growth of the money supply fell from 39.3% in Jan 2010 to 1.8% by Apr 2012. The effect of this massive decline in the growth momentum of money puts severe pressure on bubble activities. Any tampering with the currency rate of exchange can only make things much worse as far as allocation of scarce resources is concerned.

I don’t know what the Fed’s going to do. That’s a guessing game. What’s important is that we’re in an extremely fragile situation. The world has too much debt & the Fed’s margin for error is tiny. If it takes a wrong step & stocks plummet 50%, it could cause a bigger financial crisis than in 2008. Do you trust the US government & the Fed to manage this dangerous situation?

It’s tempting to see similarities in last week’s global stock market mini-crash and the monumental meltdown that almost took down the Global Financial System in 2008-2009. The dizzying drop invites comparison to the last Bear Market that took the S&P 500 from 1,565 in October 2007 to 667 on March 9, 2009. Here are a few of the differences.

Real household income — which includes both earned income and unearned income such as dividends and interest–has plummeted 8.5% since 2000. This is a striking contrast with real GDP growth of 31.6%: the economy has expanded 31.6% after adjusting for inflation, while real median household income has declined 8.5%.

The US economy is slowing to stall speed, the point when gravity overcomes the lift provided by central bank free money. This long-term weakening of the economy is the direct result of financialization & the Federal Reserve’s policy of propping up impaired debt with more debt & constantly bringing demand forward with zero interest rates.

Regardless of what slippery words are deployed to mask manipulation, it doesn’t change the reality that the US economy remains a manipulated mess that is dependent on monetary & statistical manipulation. Left unmanipulated, the statistics would no longer be rosy & both the economy & our perception of the economy would tank.

Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy. Japan’s economy fell into recession in Q3, joining Brazil & Italy. Economic sanctions have hit Russia pretty hard. There are already signs that the U.S. economy is starting to slow down too.

In an economy where activity is beginning to surge, the prices of commodities also pick up, as demand for these increases. Rising economic activity leads to demand for credit & so interest rates also increase. But this is hardly the case, which increases risk of disappointment in months ahead which could be negative for markets.

Even if the economy were growing at a faster pace, it wouldn’t come close to offsetting the interest payments on our ever-expanding debt. This leaves the entire Status Quo increasingly vulnerable to any sort of credit shock; either rising rates or a decline in the rate of debt expansion will cause the system to implode.

Since the end of the financial crisis, economists, analysts & the Fed have continued to predict a return to higher levels of economic growth. But the Q1 drop points to underlying economic growth conditions that remain weak & concerning despite several years of healing facilitated by exceptionally accommodative monetary policy.

A new research paper has found “robust evidence” that some traders have been getting early news of U.S. Federal Reserve rate announcements and then trading on it during the Fed’s media lockup. This was not just HFT front-running but actual ‘information’ leakage… from whom we wonder?

Unable to advance any solution to a series of mounting economic problems, the ruling elites however, agree on fundamental issues: that interests of banks & financial oligarchs must be defended, whatever the cost & the working class must be made to pay for the crisis that their actions have triggered.

Russia’s Natgas exports to Europe and Turkey, excl. former Soviet Union, declined to 405.3mcm as of March 22, according to Bloomberg calculations based on preliminary data from Energy Ministry’s CDU-TEK unit. Average daily exports to the region were ~457mcm in March, lower than year earlier.

A new era is dawning in Chinese foreign policy as it’s economic growth enables it to move from past timorousness in declaring itself a global leader & a relative inability to defend its interests, to one in which Beijing can seek adjustments in the security environment it has faced for the last sixty years.

Goldman expects the Fed’s FOMC meeting (the first with Yellen as Chair), to deliver an accommodative message, alongside a continued tapering of asset purchases. Their market views here are likely to shift little in response, as much of that dovishness is arguably already priced, particularly in US rates.

S&P 500 celebrated the 5 year anniversary of the current bull market by slipping almost 2% this week. We identify key drivers of the 178% or 1200 point market rally since the bottom at 677 on March 9, 2009 & also consider how the 3 drivers might change in the future. Our 2014 target remains 1900.

In China, where corporate bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. And so in the past two months, China was forced to bail out two Trusts with exposure to the coal industry.

Amid weaker U.S. growth and volatility in capital markets, China stands out as a beacon in the minds of many investors. China growth story is one that investors take for granted, but are in for a rude awakening when they realize how much of the story is false & how quickly it may come unraveled.

Once we get rid of these obsolete middleman parasites–Wall Street, the banking sector and the Federal Reserve–we have a delightful question to answer: What else can we do with the $1.25 trillion we’ll save every year by eliminating these obsolete financial middleman parasites? – A lot.